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Kudrin: Russia Is Weak Link in Capital Markets

By

Ira Iosebashvili

Updated Dec. 8, 2009 6:19 p.m. ET

MOSCOW—Russia is a "weak link" in global capital markets and will be vulnerable to capital flight as other countries see their economies improve and raise interest rates, Finance Minister
Alexei Kudrin
said on Tuesday.

"For the moment, in this global economy our capital market is still a weak link," Mr. Kudrin said at an economic conference. As developed economies raise interest rates, "volatility will be felt on our equity markets, in our currency exchange rate and in our trade balance."

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The central bank has said it will limit corporate borrowing abroad by state-controlled Russian companies in an effort to smooth out exchange-rate volatility and develop the country's relatively shallow local debt market.

For itself, the finance ministry is seeking to issue its first Eurobond in a decade. Mr. Kudrin said the list of investment banks that may participate in the sovereign bond will be available "within days."

The country plans to issue up to $17.8 billion in Eurobonds by February of next year.

Russia has been hit by a wave of speculative capital in recent months, as international investors have been drawn by higher oil prices and interest rates, benchmarked against the central bank's 9% refinance rate. That tide of hot money has pushed the ruble higher by 5.5% against the dollar since September, hurting the profits of exporters with expenses in the local currency.

Central bank efforts to fight speculative capital, including nine interest rate cuts since April, have had only limited success.

The ruble weakened Tuesday, falling to more than 30 to the dollar for the first time in more than two months.

Mr. Kudrin called for world-wide regulation of financial markets, which he said would go a long way towards smoothing out volatility.

When it comes to foreign trade, Mr. Kudrin said Russia has the World Trade Organization.

"But when it comes to equity markets, everything is regulated on a national level, leading market players to jump from one market to another," Mr. Kudrin said, adding that the issue would be discussed within the framework of the Group of 20 leading industrial economies.

Kudrin: Russia Is Weak Link in Capital Markets

MOSCOW—Russia is a &quot;weak link&quot; in global capital markets and will be vulnerable to capital flight as other countries see their economies improve and raise interest rates, Finance Minister Alexei Kudrin said on Tuesday.